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RBI mulls pilot project for its digital currency; Will CDBC create an enigma for stable coins?

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New Delhi: In a recent interview, T Rabi Sankar, the Deputy Governor of Reserve Bank of India (RBI) said that the central bank will launch its digital currency as a pilot project this year.

Addressing the India Ideas Summit, Sankar said that Central Bank Digital Currency (CBDC) is the most efficient system for cross-border payments. Though, it reiterated that RBI aims to give viable alternatives and not going for a cashless society.

Finance Minister Nirmala Sitharaman had announced the launch of CBDC during her union budget speech, which was tabled earlier this year.

Pratik Gauri, Co-founder & CEO, 5ire said that as cautious as the government has been about both VAs and digital currency, it is a novel step to be taken by a central bank.

“It must be noted that this comes at the heels of ‘deliberation over the regulation of cryptocurrency’ and the earlier voiced ‘serious concerns’ around private cryptocurrencies on the grounds that these may cause financial instability,” he added.

According to some media reports, the RBI is in discussions with fintech firms and four public sector banks to trial the Central Bank Digital Currency (CBDC) project, with a potential launch slated for later in 2022.

Fidelity National Information Services (FIS) is reported to be among one of these firms. FIS gives banks central infrastructure payment solutions to develop real-time payments systems as well as a CBDC Virtual Lab to help nations trial CBDC initiatives.

Gauri, who lauded RBI’s approach to reach of FIS for consulation, is skeptical if RBI would launch a decentralized system operating the CDBC. RBI’s governor Shaktikanta Das has been a vocal critic of crypto assets or decentralized payment.

“A centralized system purposefully skirts innovation and development of a transparent and accountable system that in my opinion is what RBI should aspire for,” he said.

Other experts believe that this will boost the cross border payments as UPI is now available in countries like UK, France, Singapore and UAE, Indian diaspora and businesses will be able to move funds instantly without any friction.

Sharat Chandra, Co-Founder, India Blockchain Forum, believes that the digital Rupee will bring efficiency to cross border payments and reduce the settlement risks thereby aiding businesses involved in B2B trade .

“Wholesale CBDCs will impact the usage of fiat collateralized stablecoins used for business specific remittances and payment settlements,” he added. “Retail cross border payments using stablecoins aren’t going to feel the heat from wholesale CBDCs.”

Market participants believe that rampant acceptance of stablecoins forced the central banks to introduce their own stable digital currency.

However, one should not jump the gun to predict the endgame of the existing private stablecoins, whose future appears to be in doldrums or delusion, thanks to various factors and utilities of CBDCs.

Ultimately the fate of CBDCs and stablecoins may be decided by the regulation and adoption, said Raj A Kapoor, Founder, India Blockchain Alliance.

“It is too early to predict the impact of greater regulation on stablecoins. In contrast, early efforts to issue CBDCs have been met with only moderate adoption. Coexistence and balance seem to be the future.”

While CBDCs will be issued under the auspices of central banks, stablecoins would potentially be subject to regulatory oversight from multiple agencies, depending on their classification as assets, securities, or even money-market funds, he added.

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